New Asian policies signal important changes

September 08, 2009
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by Morton Sosland

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Some years ago an American trade journal editor journeyed to Japan to participate in a debate about domestic agricultural policies as they affect world trade. The editor’s position, in addressing government, grain trade and farming interests in Japan, was that the country’s exceptionally high support prices for rice do not make sense for a nation that has prospered by expanding foreign trade. Most memorable in the Japanese responses to the editor’s pleas for change was this plaintive question, "Have you ever seen the moon shine on a paddy field?" Even though the editor had indeed seen that lovely sight, he resisted answering the question, coming away feeling that if scenic beauty would carry the day, silence seemed appropriate. This episode is now vividly recalled as Japanese agriculture, particularly the rice sector, has experienced sharply lower prices. In turn, this has caused numerous farmers to abandon production and the government to undertake steps to spur the rural economy by offering incentives to grow rice.

"Unmistakable malaise" is the term applied by one commentator to Japan’s rural economy. As the government gave up on high price supports, largely because of the country’s long-running recession and budgetary pressures, production of rice fell. The wheat crop provides less than a quarter of consumption, and the same goes for soybeans. Japan now must rely on imports for more than 60 per cent of its food consumption. While government lapses receive most of the blame for agricultural shortfalls, the realization that 70 per cent of the nation’s 3 million farmers are 60 years old or older also looms large.

Japan’s dependence on imports stems from a policy imposed by the United States after World War II. Small farms and millions of individual farmers were considered the best path to strengthening democracy. While food production suffered, Japan’s economy blossomed. No one seriously worried about dependence on foreign food until the 2008 soaring of prices and the surfacing of concerns about grain supply adequacy.

It is no surprise that the government’s stimulus package includes $10 billion to boost farm production, mainly by providing financing to producers desiring to expand acreage. The goal is less dependence on imports, even as wheat needs are likely to rebound from the setback attributed to higher bread prices.

Considering Japan’s importance as a leading importer of wheat, nearly 5 million tonnes in 2009-10, and of feed grains, estimated at 16 million tonnes, a stimulus program aimed at expanding outturns could have a major impact on global trade. Special payment plans have been adopted for farmers who specifically respond to expanding crops of rice suitable for flour and feed and wheat as a way of curtailing reliance on imports. As the second largest economy in the world and as Asia’s largest importer of wheat and feed grains, Japan’s government has made a choice in seeking to revive its economy that is starkly different from that of other developed nations. Thus, its neighbor, South Korea, facing the same sort of pressures from high grain prices of 2008, intends to offer credit to companies that will invest in overseas farms and in advanced food technology, as long as these efforts increase the country’s food security. Already, South Korean companies, spurred by government prodding, have been exploring huge farming operations in places as different as Madagascar and Russia’s Far East. At home Korea is moving away from protecting small farmers to spurring expanded large-scale commercial production.

These steps and their consequences merit careful study since they reflect radical change from these nations’ long-standing reliance on sizable grain imports. Following this new course to replace policies that reflect little or no concern about self-sufficiency may signal a transformation of great significance to the future of global trade in wheat and other grains. At the very least, these moves by Japan and South Korea affirm that the consequences of searing volatility in global grain markets have not played out.

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